At Gerdau’s St. Paul steel mill, steel made from crushed cars and scrap metal is cast into billets.

Richard Sennott, Star Tribune

St. Anthony: Forging a steel deal in St. Paul

Article by: NEAL ST. ANTHONY

Star Tribune

June 3, 2012 - 6:27 PM

Gerdau is not exactly a household name in Minnesota.

But the Brazilian steel giant's plan to invest more than $50 million in its Mississippi River minimill, tucked away in the industrial southeast tip of St. Paul, is generating positive buzz from labor, business and city officials.

"I give the Brazilians credit," said Chuck Nippoldt, a plant veteran and president of United Steel Workers Local 7263. "They did not ask us for concessions. They extended our contract for two years recently and gave us 2 percent raises. They're willing to secure our future."

Said Bill Blazar, an executive of the Minnesota Chamber of Commerce: "This is a nice case study of business retention at its finest."

Gerdau has commenced a two-year, $55 million investment to replace the 1965-vintage "continuous caster" -- the computer-controlled guts of the steel plant, which melts crushed cars and other scrap and shapes it into new products for the mining, energy and construction industries.

After the closing of the Ford plant, St. Paul Mayor Chris Coleman said it was important to capture the Gerdau investment and "save these jobs" at a plant that also is Minnesota's top recycler of old vehicles.

"Gerdau has confidence in us and our highly productive, knowledgeable workforce," Rogerio Turatti, the manager of the St. Paul plant, said in an interview last week. "Our location is good. The new caster is the first step in producing higher-end products. To get to the benchmark that we have to achieve will require investments and training."

In short, St. Paul has retained an economic powerhouse that's poised to do better.

The chamber's Blazar specializes in business retention and expansion, the most cost-effective form of economic development. Blazar coordinated what became a public-private consortium that has quietly worked on the project with Gerdau since 2011, when the steel giant's North America unit launched a review of its mills to determine which would be upgraded to produce higher-quality "specialty bar" products.

"This deal speaks to the quality of the St. Paul labor force and the ability to supply competitively priced energy to Gerdau,'' Blazar said. "That's a great sign of the future of manufacturing in Minnesota."

The new equipment, including improvements underway and planned through 2014, will total more than $55 million and enable Gerdau's St. Paul mill to expand production by about 20 percent.

The new caster will enable Gerdau St. Paul to produce more specialty steel bar in demand by the automotive, energy and other industries. Most of what the St. Paul plant produces today is "rebar" and "rounds," fairly crude products that are shipped out for further refining. Those products end up in farm equipment, wind turbine towers, the steel spine of new roads and grinding balls used by mining industries.

"The customers today are demanding higher quality bars and we can't meet that demand," Turatti said. "We are going to change that caster and make higher-refined grades of steel."

Fred Zimmerman, a retired manufacturing expert, said the St. Paul plant was always considered solid, and the upgrade is good news in a U.S. industry better known for consolidating and shuttering plants. Over the past 25 years, the Chinese have emerged to produce more than 40 percent of the world's steel.

"Gerdau, one of the world's biggest steel companies, has a strong balance sheet and appears to know what they are doing," Zimmerman said. "Putting in a new caster is something."

Zimmerman noted that rebar is selling for about a 25 cents a pound lately, while specialty steels sell for up to $1.65 per pound.

"It's sort of like the price of beer compared with wine or cognac," he said.

Development package

Gerdau turned down $8 million in tax-exempt financing offered by the St. Paul Port Authority.

Guilherme Johannpeter, president of Gerdau North American operations, said the company chose to finance the project internally.

However, he thanked local officials at a groundbreaking ceremony last week for other incentives, including $4.2 million in sales tax exemptions, about $1 million in loans, some of which could be forgiven, and a $400,000 state grant that will be used to train workers on new equipment.

Xcel Energy Inc., which provides massive amounts of electricity to the plant, agreed to an unspecified five-year rate reduction with Gerdau St. Paul that has been approved by the Minnesota Public Utilities Commission.

Gerdau will use more electricity to produce a lot more higher-quality steel, but has agreed to peak-time conservation measures, which means Xcel won't have to add expensive capacity to accommodate the expansion, said Laura McCarten, Xcel's regional vice president for state affairs.

"We keep the customer demand and help protect the rest of our customers from picking up any new fixed costs," McCarten said.

So-called minimills that use mostly recycled scrap as feedstock are considered the most flexible, efficient and cleanest steel plants. They use less than half the energy required to make steel from raw ore.

Tim Considine, an economics professor the University of Wyoming, said in a study this spring that America's resurgent steel industry is driving the manufacturing-led economic recovery of the last three years. Considine estimated that every one job in the steel industry supports seven other domestic jobs because steel is "the most prevalent material in the economy."

Considine, whose report was supported by the industry, estimated that for every dollar increase in sales for iron and steel mills, the U.S. economy grows by $2.66.

Back in St. Paul, plant manager Turatti, a 20-year Gerdau veteran, said his team won't disappoint.

"We will make this plant a success," he said. "There is no other option."